Density Characteristics and Density Forecast Performance: A Panel Analysis

41 Pages Posted: 5 Jul 2014

See all articles by Geoff Kenny

Geoff Kenny

European Central Bank (ECB)

Thomas Kostka

European Central Bank (ECB)

Federico Masera

Universidad Carlos III de Madrid, Department of Economics

Date Written: May 13, 2014

Abstract

In this paper, we exploit micro data from the ECB Survey of Professional Forecasters (SPF) to examine the link between the characteristics of macroeconomic density forecasts (such as their location, spread, skewness and tail risk) and density forecast performance. Controlling for the effects of common macroeconomic shocks, we apply cross-sectional and fixed effect panel regressions linking such density characteristics and density forecast performance. Our empirical results suggest that many macroeconomic experts could systematically improve their density performance by correcting a downward bias in their variances. Aside from this shortcoming in second moment characteristics of the individual densities, other higher moment features, such as skewness or variation in the degree of probability mass given to the tails of the predictive distributions tend - as a rule - not to contribute significantly to enhancing individual density forecast performance.

Keywords: density forecasting, forecast evaluation, Survey of Professional Forecasters, panel data

JEL Classification: C22, C53

Suggested Citation

Kenny, Geoff and Kostka, Thomas and Masera, Federico, Density Characteristics and Density Forecast Performance: A Panel Analysis (May 13, 2014). ECB Working Paper No. 1679, Available at SSRN: https://ssrn.com/abstract=2436416

Geoff Kenny (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Thomas Kostka

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Federico Masera

Universidad Carlos III de Madrid, Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain

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